Introduction to Property Insurance

Question 1

what does it mean to “bind” an insurer on a risk

Answer 1

the broker has committed the insurer to a contract of insurance

Question 2

binders may be ____ or ____

Answer 2

oral or written

Question 3

why are binders important

Answer 3

avoids a potential for disagreement as to coverage and amounts insured in the event a loss occurs before a policy has been issued

Question 4

what is a binder/cover note?

Answer 4

a piece of paper setting out basic details of risk, along with coverages and limits requested

Question 5

what informs brokers of the limits they have the authority to bind a company to?

Answer 5

the Agency Agreement

Question 6

what happens if a broker exceeds their binding limits and a loss occurs

Answer 6

might be dealing with an E&O claim

Question 7

what do endorsements do?

Answer 7

endorsements AMEND the contract

Question 8

what are endorsements?

Answer 8

legal forms that amend the policy wording

Question 9

what is a rider?

Answer 9

a type of endorsement that adds additional coverage to an existing contract

Question 10

what is a floater?

Answer 10

a type of endorsement that provides coverage for property that moves from place to place (floats) and is transient in nature

Question 11

what does PACICC stand for?

Answer 11

Property and Casualty Insurance Compensation Corp

Question 12

what does PACICC do

Answer 12

it is insurance in case the insurER is bankrupt/insolvent and the insured has a claim

Question 13

what are PACICC’s claims limits?

Answer 13

up to 500k per policy, policy deductibles are applied to the total amount of the insured loss

Question 14

PACICC will also refund what percentage of unearned(unexpire) portion of your premium calculated from the date of the wind-up order

Answer 14

70%

Question 15

what is the definition of fiduciary

Answer 15

one who holds property or money in trust for another.

Question 16

insurers and brokers are……

Answer 16

fiduciaries

Question 17

define ‘right of subrogation’

Answer 17

this is a legal right provided to insurers, who having indemnified an insured, are now entitled to the same rights of recovery as the insured had to recover the amount of a loss from the responsible party.
The INSURER has the “right” to collect money paid from the at fault party

Question 18

what does subrogation mean

Answer 18

to put oneself in anothers’ shoes

Question 19

a policy insuring loss by FIRE must provide what 3 coverages?

Answer 19

1) fire
a) friendly fire: one that is contained in its proper receptacle and is where it should be (NOT COVERED)
b) hostile fire: a fire which escapes from its receptacle (COVERED)
2) lightning
3) explosion of natural, coal, or manufactured gas

Question 20

Insurers are NOT required to provide coverage for losses cause directly by these 4 legislated exclusions:

Answer 20

1) direct application of heat
2) lightning damage to electrical devices or appliances
3) “other’ types of electrical currents
4) contamination by radioactive material

Question 21

give an example of a ‘direct application of heat’ exclusion:

Answer 21

Brian is ironing his shirt, fire breaks out and burns house. only the actual shirt to which heat was directly applied via iron would not be covered

Question 22

give further clarification to what is meant by the contamination by radioactive material exclusion:

Answer 22

when any perils insured under a policy cause radioactive materials to escape, resulting damage is not insured.

Question 23

Fire damage resulting from what following deliberate acts are uninsurable?

Answer 23

-war
-rebellion
-revolution
-invasion
-civil war
-hostilities
-act of foreign enemy and military power
-arson (must be proven)

Question 24

why is fire damage resulting from specific deliberate acts uninsurable?

Answer 24

because would bankrupt insurers and are to be borne by society as a whole

Question 25

who are statutory conditions imposed by

Answer 25

provincial legislation

Question 26

can insurers make changes to statutory conditions?

Answer 26

NO, prohibited

Question 27

why are statutory conditions important?

Answer 27

they clearly outline the rights and responsibilities of all parties to the contract and ensure all are treated fairly

Question 28

what policies do statutory conditions apply to

Answer 28

auto, property, accident and sickness policies

Question 29

every policy that insures the peril of fire contains what??

Answer 29

statutory conditions

Question 30

the Insurance Act requires that all rules governing the rights and responsibilities of all parties to a contract of _________insurance be a part of _____ _____

Answer 30

FIRE, every contract

Question 31

Brokers legally represent and owe their primary duty of interest to the

Answer 31

client

Question 32

agents legally represent and owe their primary duty of interest to the

Answer 32

insurer

Question 33

brokers are employed by

Answer 33

owner of independent brokerage

Question 34

agents are employed

Answer 34

directly by insurance company

Question 35

brokers can sell....

Answer 35

a variety of products offered by many insurance companies

Question 36

agents can sell...

Answer 36

products offered by ONE insurance company only

Question 37

brokers and agents owe what type of duty to the insureds they represent

Answer 37

fiduciary

Question 38

what is a physical hazard

Answer 38

hazards you can see and touch , may enhance or deter the possibility of a loss

Question 39

examples of physical hazards?

Answer 39

occupants, building construction, housekeeping

Question 40

what is a hazard?

Answer 40

the condition of a property that could cause a claim

Question 41

what is a peril

Answer 41

the cause of loss

Question 42

what are moral hazards

Answer 42

subjective characteristics of the applicant which may or may not be observable

Question 43

examples of moral hazards

Answer 43

financial condition of business, moral character

Question 44

what is estoppel?

Answer 44

a legal doctrine which precludes the person from denying the truth of a statement they previously made that would cause one to draw certain logical conclusions. in other words, a 'bar of expectation' whereby someone's actions lead another to believe something. that becomes their reality and what the insured would then believe in a reasonable assessment

Question 45

give an example of estoppel

Answer 45

ex: auto policy violation driver intoxicated. adjuster leads insured to believe company is going to provide all coverages. by adjusters actions alone, the company would be estopped from denying this claim

Question 46

what is a hard market

Answer 46

a hard market occurs when insurance companies have experienced poor underwriting results. when insurance companies are not realizing an underwriting profit, rates need to be adjusted to improve the financial performance.

Question 47

what is significant of a hard market

Answer 47

rates increase and coverage becomes more restrictive

Question 48

in a hard market, what becomes more difficult?

Answer 48

for agents and brokers to obtain favorable and competitive terms for their clients

Question 49

what is a soft market

Answer 49

when the underwriting results are positive, companies are competitive and making money. more companies are willing to write that class of business, and naturally the rates (premiums) reduce

Question 50

what is the process of reporting clams

Answer 50

claims are technically reported to the broker, and the broker then reports it to the insurance company. from there either an insurance company adjuster or an independent adjuster will be assigned by an insurer to settle a claim.

Question 51

who are underwriters

Answer 51

employees of insurance companies

Question 52

what do underwriters do?

Answer 52

assist in rate-making and helping place business through the insurer, not required to be licensed